Who gains from a ban on Cash Transactions?

David Gauke, the exchequer secretary, said the other day, 'paying a plumber cash in hand is morally wrong' since it helped in law breaking i.e. tax avoidance by tradesmen. While researching this remark, thanks to Google, I also spotted the following interesting headlines:

 "Louisiana makes it illegal to use cash for second-hand sales"

 "Italy makes cash illegal: Comrade Obama to follow fascist Italy"

 "David Gauke Worked for 'Tax Avoidance' Firm before Job at Treasury"

So I guess a PR campaign is afoot to demonise cash transactions before banning them. The logic being that it enables small traders to cheat the government of its share of taxes from their economic activity. While examining this issue it is important to understand who will be the gainers and losers if such a legal ban on cash transactions were to be enacted.

Firstly, this is a case of the government intervening to help banks and vendors of credit and debit cards. Small businesses, who cannot afford the high fees demanded by the card companies, are being bullied into accepting costs which will make them lose their competitive edge. Ironical policy from a government that wishes to see a small enterprise revolution and was even willing to relax labour laws enabling easier hire and fire policies for them.

Secondly, it is definitely possible that some citizens and traders are using cash transactions to avoid government taxes. In the case of the super rich the government made the argument that lowering the tax rate was the only way to increase government revenues. Surprisingly the same government conveniently forgets its own arguments when it taxes small traders and poorer citizens. Shouldn't it admit that its high VAT levy is causing this tax avoidance and therefore reduce it to 10 % or even lower.

Thirdly, such 'tax avoidance' by citizens will result in a further stimulus to consumption since these low income citizens will use their 'tax avoided' pounds to buy other goods and services from within the UK economy. This could lead to greater demand in the economy and help the process of economic recovery. Also, wasn't a similar rationale used to avoid taxing the 'billionaire non doms' who've been paying only £ 30,000 tax year upon year.

Before examining Gauke's idea of immorality, it is important to understand the difference between legal and moral. An act is legal if it does not contravene any of the laws of the land.     Thus to know whether any act is legal we simply need to know what the law says about that act — is it prohibited or not? In most countries there are legislators, parliaments, councils, courts and judges and, through various procedures, these people and institutions decide what is or is not legal in that particular country or region. An act is moral if it does not contravene a moral standard. However in the UK, unlike the law, there is no standard definition of morality. Hence there is no way to ascertain if an act is truly immoral since there is no common reference document to be consulted.

So Mr. Gauke, very rightly, does not term the exchange of goods and services for cash as illegal but only calls it immoral. However Mr. Gauke's pronouncements may be a forerunner to the governments plans to delegitimize cash transactions. Like in the Barclays advert we maybe moving into a cashless world and tradesmen and citizens are well advised to find accountants and lawyers to avoid the tax demands of this pro market and low intervention government. They should pray that atleast some of these smart accountants and lawyers will accept cash though!